• Axiata Group Berhad, Telenor Asia Pte Ltd and Digi.com Berhad announced the  completion of the merger of the telco operations of Celcom Axiata Berhad with Digi

• Axiata and Telenor will both hold equal ownership in Celcom Digi at 33.1% each.

• With Telenor involvement in the merger, we think that the new Celcom Digi will be able to benefit in terms of the development of 5G as Telenor is also engaging with key international bodies namely 3GPP which is also the main engine for standardizing 5G and exchanging 5G learnings with other operators.

• Maintain Overweight on Telco Sector

Creating the largest telco player in Malaysia

Based on the Bursa announcement dated 30th November 2022, Axiata Group Berhad,  Telenor Asia Pte Ltd and Digi.com Berhad has completed the merger of the telco operations of Celcom Axiata Berhad and Digi. Note that Axiata and Telenor will both hold equal ownership in Celcom Digi at 33.1% each. Malaysian institutional investors namely the Employees Provident Fund, Permodalan Nasional Berhad and the Retirement Fund among others are also shareholders of Celcom Digi. Axiata who received newly issued  Digi shares representing 33.10% of the enlarged share capital of Digi, and a cash consideration of RM2.5bn funded by Digi. As for Digi, the group also issued shares to  Telenor to reach equal ownership following Telenor's payment of RM0.3bn to Axiata.  Digi and Celcom have a current market capitalization of RM26.7bn and RM13.2bn respectively, comfortably surpassing Maxis (RM27.4bn) and TM (RM20.7bn) following its combined market capitalisation of close to RM40bn (assuming no dilution). Hence this will position Celcom Digi as the largest local listed technology company on Bursa  Malaysia.

What are the Synergistic Benefits

We understand that Celcom Digi has announced that the group is remain committed to the previous announced synergy target of RM8bn. Aside to that, other synergistic effect that can be achieved by Celcom Digi are (1) be able to build new infrastructures in a more convenient way, (2) better brand value, (3) bigger client base, (4) wide array of products and services and (5) economies of scale. We opine that the new merged entity, Celcom  Digi will lead to more healthy competition in our local telco industry. However, we do  not discount the possibility of lower ARPU from the telco players as a result of the competitive pricing.

Maintain Overweight on Telco Sector

We are maintaining Overweight call on telecommunication sector on the back of (i)  positive development on 5G rollout in Malaysia, (ii) anticipation of gradual recovery in  roaming contribution driven by a surge in migrant workers and tourist prepaid SIM card  in line with the reopening of international borders – note that government is anticipating a muti-fold increase in the number of tourist next year, (iii) expectation of positive outcome from Digi-Celcom merger deal which might attract more foreign investors, and  (iv) anticipation of healthy earnings potential from our local telco players, thanks to hybrid arrangements for work and learnings apart from the strong take-up rate expected for e-commerce.

Source: BIMB Securities Research - 1 Dec 2022